Mexico Energy Reform: Transformational, Start Of A Bull Run?

By Shuli Ren

Analysts like the current version of the energy reform bill that is being studied in the Mexico Senate right now, calling it “meaningful” (Morgan Stanley) and “massive and transformational” (Citi).

The bill is widely expected to pass, as the coalition parties already have the majority vote. Here is Bloomberg reporting:

Senators from the PRI, PAN and allied Green Party have the two-thirds majority needed to pass the bill in both houses and are seeking to amend the nation’s charter to allow private and foreign energy companies to pump oil in Mexico’s $95 billion-a-year industry for the first time in 75 years.

The government estimates an energy overhaul would lift economic growth 1 percentage point by 2018 and reverse production losses.

Apart from opening the oil and electricity sectors, currently monopolized by Pemex and CFE, to competition, the oil production targets presented by the Senate are aggressive, says Morgan Stanley:

By 2018, oil production target is 3.0 mbpd (20% above current levels), and by 2025 it is targeted to increase to 3.5 mbpd (17%). Gas production is scheduled to increase 40% by 2018 and a further 30% by 2025.

Morgan Stanley expects the Mexican stock market (particularly consumer names) as well as Mexican peso to rise if the reform is passed. The iShares MSCI Mexico Capped ETF (EWW) gained 1.5% this month. The peso gained 2% against the dollar.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.